Dollar Sentiment Down on Recovery Concerns

Dollar remained mainly within range against the EUR Tuesday, however, Dollar sentiment dampened after statements from the Federal Reserve saying they believe the economy is going to recover at a slow pace and that unemployment will remain high well into 2011.

Economic News

USD – Dollar Sentiment Pressured by Fed Comments

The USD held on to modest gains Tuesday as equities and commodities declined. However, pressure on Dollar sentiment came following the FOMC Meeting Minutes. The Federal Reserve said Tuesday that officials believe the economy is going to recover at a slow rate while unemployment will remain high. These statements affirmed expectations the Federal Reserve will keep rates low for an extended period of time.

The Dollar Index, which tracks the greenback against a trade-weighted basket of six currencies, was at 75.116, compared with 75.130 Monday; remaining fairly directionless and within recent ranges against most major counterparts. The Fed’s near 0% interest rates and monetary stimulus programs have weighed on the greenback this year, since the programs have effectively printed more Dollars and flooding the markets with extra currency.

Earlier in the day the USD received some support from disappointing U.S economic data. The U.S. economy’s recovery wasn’t as strong as earlier believed with Gross Domestic Product (GDP) rising at a 2.8% annual rate July through September after falling by 0.7% in the second quarter. This was a revision from a month ago, when the estimated was that GDP rose by an annual 3.5% in the third quarter. However, The Conference Board’s U.S. Consumer Confidence Index improved to 49.5 in November from 48.7 in October, beating economists’ expectations.

Looking ahead to today, another full news day is expected from the U.S with the Core Durable Goods Orders and Unemployment Claims due to be released at 13:00 GMT and the New Home Sales at 15:00 GMT.

The EUR was mainly higher against the Dollar Tuesday following a report suggesting that the U.S monetary stimulus program is likely to remain in place the longest among the countries which adapted similar programs. Furthermore, the German Ifo Institute’s November business climate index exceeded investors’ expectations. .

Late Tuesday, the EUR was at $1.4965, compared with $1.4968 late Monday and at ¥132.49, down from ¥133.22. The U.K. Pound was at $1.6586, down from $1.6615. The pound also fell against the EUR yesterday, trading at 90.25 pence per EUR after falling 0.2%, on speculation the U.K. Central Bank will extend its asset purchase program after Bank of England Governor Mervyn King said the U.K. economy faces “profound challenges”.

The release of U.K’s Revised GDP at 9:30 GMT today is expected to show a slight improvement, however, if results are worse then expected the GDP may exacerbate its downward trend.

JPY – Yen Gains against Most Major Currency Counterparts

Japan’s currency gained against 15 of its 16 major counterparts Tuesday, gaining broadly against the Dollar. Both the Yen and Dollar are popular funding currencies in carry trades in which these currencies are used by investors to buy equities and higher yielding currencies. As investors unwind these trades, the Yen tends to benefit against the greenback.

Japanese shipments abroad dropped 23.2% in October, compared with a 30.6% decline in September, beating economists’ expectations for a 26.8% decline. The renewed demand was fueled by demand from China and other emerging markets. Japan’s economy expanded at the fastest pace in more than two years in the third quarter, with the expansion driven by gains from exports.

Oil – Crude Prices Drop to Lowest Level since Oct. 14

Crude Oil futures for January delivery fell nearly 2% Tuesday, settling at $76.02 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 14. Crude Oil fell to $75.73 a barrel in electronic trading late Tuesday, down 0.4% after the American Petroleum Institute said U.S. crude stockpiles rose by 3.4 million barrels last week. U.S. inventories had begun to level off earlier this quarter, but weak demand has prevented any significant reduction in the surplus. The outlook for recovery in demand was further marred when the U.S. Commerce Department cut third quarter GDP growth expectations for the quarter to 2.8% from an earlier estimate of 3.5%. The release of today’s Crude Oil Inventories from the Department of Energy at 15:30 GMT is also expect to show a rise in supplies, possibly putting further pressure on Oil prices

Technical News

EUR/USDAfter yesterday’s upward movement, the price of this pair appears to be floating in the over-bought territory on the RSI of the hourly chart, signaling that there is still room for a downward correction. The recent bearish cross on the 30 min. chart’s Slow Stochastic supports this notion. Going short to ride out the remainder of the bearish correction may be a wise choice today.GBP/USDThe Cable has resumed its bullish trend and is attempting to breach the 1.6650 level. Should the breach take place, the pair might further extend its bullish run, with a potential price target of 1.6725USD/JPYThe price of this pair has been range-trading within a bearish channel since the beginning of the week and has yet to create a significant breach. Yesterday’s downward movement has put the price near the lower border of its current channel, however. If the price succeeds in breaching through, forex traders may see a strong bullish movement. If it fails to breach, the movement will correct downwards within its current channel. Traders may want to wait to see if the breach occurs before setting positions today.USD/CHFThe pair has resumed its bullish activity for the past couple of days and is currently trading at the 1.0078 level. However, it failed to breach the 1.014 level and has provided mixed results ever since. If the pair will indeed breach the 1.016 level, a sharp bullish move might take place

The Wild Card

NZD/JPYThe pair is in the middle of a strong bearish move ever since it dropped below 64.80, and is now traded at 64.25. The pair continues its nonstop downward journey overlooking every possible support level and shows no sign of a stop. All oscillators on the daily chart are still bearish and the trend appears to have more room to run. Forex traders should note that being short on the pair appears to be a wise move for the day.